Even Without Big Car Company Deals, Global Consolidation Will Continue
30 November 2000
PricewaterhouseCoopers Forecast: Even Without Big Car Company Deals, Global Consolidation Will Continue in the Auto Industry in 2001
NEW YORK--November 30, 2000--The real M&A action will come in the enormous supplier universe
As the big car companies run out of possible acquisitions of competitors, the real action will come in the enormous supplier universe, particularly in Europe, according to the M&A forecast for the auto industry by the Transaction Services group of PricewaterhouseCoopers.
The group points to the following factors as driving M&A activity in the auto industry in 2001:
| -- | The key word is consolidation. By the year 2010, only 25 to 30 Tier 1 suppliers will survive globally, all of them focused on core competencies - and that is down from the more than 600 Tier 1 suppliers currently. A similar downsizing is underway among the 10,000 Tier 2 suppliers, which will be whittled down to about 600 over the same period. At the Original Equipment level, expect a consolidation from 9 to 5 major players. |
| -- | Europe faces a haircut. Europe has too many suppliers, both Tier 1 and Tier 2, and they are facing intense competition from within Europe as well as North America. Look for several big European Tier 1 suppliers to make aggressive acquisition plays to gain critical mass quickly. At the same time, Europeans can be expected to remain very involved in U.S. acquisitions as well. |
| -- | In the end, it's all about costs. With car prices already down 3 to 6 percent, vehicle manufacturers are clearly feeling price pressure in the marketplace. And with petroleum-based resin products comprising a large portion of a vehicle's weight, big hikes in the cost of crude don't help. Add to that the fact that the vehicle manufacturers still need to make heavy capital investment to increase the number of million-unit-vehicle platforms (currently accounting for 16 percent of world market production and expected to be 40 percent by 2005) to lower costs and increase competitive efficiencies. |
| -- | Enter the financial buyer. Cash-rich private equity players are very opportunistic with Tier 1 suppliers, which offer strong revenue streams. The Tier 2 universe is still too large and unruly for any but the bravest financial buyers. |
| -- | The jury is out on e-business. E-business will clearly become an important factor in the long run, both in terms of collaborative design efforts and e-purchasing. Near term the industry remains focused on price reductions, overcapacity (particularly in Asia) and consolidation. Benefits coming out of e-technology will gradually evolve and hopefully accelerate, providing significant value to global automotive supply chain management systems. From start to finish, establishing a comprehensive and effective "virtual" supply chain system will be a process measured in years, not months. |
Mike Burwell, a partner with Automotive Transaction Services at PricewaterhouseCoopers, said, "This is a pivotal time in the global auto industry. The vehicle manufacturers have demonstrated how quickly and thoroughly consolidation can take place. But the real work is still ahead of us in the far larger and chaotic supplier universe, where there are enormous redundancies along with enormous opportunities to lower costs throughout the supply chain."
The Transactions Service group of PricewaterhouseCoopers provides M&A and capital markets advisory services to some of the largest strategic and financial buyers in the U.S. The group operates from 14 US cities and over 90 locations in North America, Latin America, Europe and Asia.